Mortgage rates rose slightly this week. Freddie Mac reported today that the average rate on the 30-year fixed-rate home loan ticked up to 3.18% from 3.17% last week, following the upward trend of the 10-year Treasury yield.

As we have mentioned many times in the last couple of months, inventory is continuously falling, slowing down the pace of pending home sales, the indicator for existing-home sales. Pending sales declined for the second straight month in February to a lower level than a year earlier. It seems that rising mortgage rates haven't had any impact on housing demand so far, since there are multiple offers and homes are selling faster than before. In fact, it's the limited inventory that is slowing down the activity of pending sales.

With President's Biden new infrastructure proposal, broadband will be more available to underserved areas. If the teleworking trend remains even after the pandemic, more people could move to less dense and more affordable areas. This trend could ease the existing housing supply shortage since homebuilders can deliver more homes in these areas where land is less scarce and less expensive. For instance, New Jersey is one of the states with the best broadband coverage; 80% of the households have a high-speed internet connection. However, 60% of the households have high-speed internet connections in Alabama.

In addition, based on our study, housing markets near transit outperform. Specifically, median sales price increases near stations are 4 to 24 percentage points higher for residential properties than in areas farther from public transit. Meanwhile, without access to affordable housing, investments in transportation and infrastructure will fall short of creating vivid communities. Thus, infrastructure and housing are interrelated.

Expect housing demand to remain strong in 2021. However, keep in mind that higher buying activity and, thus, more mortgage applications, put upward pressure on mortgage rates. As a result, mortgage rates will likely continue to rise but remain at historical lows near 3.5% in 2021.

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